Thoughts on Money & Poverty: The Root

In my series of posts focused on confronting the existence of poverty and thinking through the issues behind it [Thoughts on Poverty parts I, II, and III], I came to a series of realizations which I will sum up as follows: 1) development, profit-generation, and gentrification is not necessarily a bad thing; 2) poverty is not spawned by the idleness and laziness of the poor but rather through structures of commerce and policy; 3) charity is only a symptomatic response, and does not in any way address the root causes of poverty; and 4) poverty is sustained by the lack of will and indifference on the part of those with influence and money. These are all poignant observations, but my thought process was stopped short continually when I hit the wall of what do we do to change this? This can be seen especially in my second post, in which I end it by stating that micro-credit doesn’t work in the US, and that I have a lot more to learn on the subject of poverty.

I do indeed have a lot more to learn, but the wall that I was hitting turns out to be a quite common perception within the US in regards to the problem of entrepreneurship/employment and the poor. That wall is welfare. I was getting at this idea in a general way when I discovered that charity is a manifestation of shallow perceptions of the problem and not the solution.

The fact is that welfare has created a powerful disincentive to those stuck in poverty from ever obtaining the motivation to succeed. It’s throwing money at the problem, and increasing the division between the poor and the rich. It’s a type of exclusion, a method of control. Any of us who has ever been bribed by our parents knows this.

I arrived at this understanding while reading Banker to the Poor, by Muhammad Yunus. I have talked about Yunus before, and posted plenty of quotes of his, but I had not yet actually read a book written by him. I would highly advise reading some of his speeches and his books, in addition to books written about Grameen Bank such as David Bornstein’s The Price of a Dream. In Banker to the Poor, he discusses the reactions of Americans to the concept of micro-credit, and the problems he encountered with welfare states in the US and in Europe.

“I was not prepared for the amount of skepticism I encountered. What struck me was not so much people’s doubt as to whether micro-credit would succeed in the United States but their pessimism about whether anything would actually raise people out of poverty rather than merely alleviating its symptoms. Many Americans argue that their welfare state has created a lazy underclass of dysfunctional individuals who would never be interested in or capable of starting their own businesses or supporting themselves.

. . . Almost everyone I spoke with dismissed what I said, arguing that the Bengali experience could not be relevant to poverty eradication in the United States. They claimed that [poor people] needed jobs, training, health care, and protection from drugs and violence, not micro-loans, and that self-employment was a primitive concept lingering only in the Third World. Low-income people . . . needed money for rent and food, not for investment. They had no skills anyway. . . .”

That is essentially the argument that I had been making in my second post on poverty. I was talking about how the cottage industries in Bangladesh of weaving, making furniture, rickshaw pulling, etc, were all something ingrained in their traditions and way of life. In the United States, I thought, what could we do to start our own businesses? Isn’t it a lot of hassle and paperwork, and don’t you have to get some kind of training and a degree? However, the more that you think about it, the more that you realize that the problem isn’t that people don’t have skills or ability, it is that they lack will and motivation.

I wrote a post while in Colombia on the teeming activity of its micro-economies, and of how this was inspiring to see, something that we need in the United States. And that is exactly what we do need! We need more street vendors, more individuals starting their own taxi businesses, more food carts, more clothing makers, more strange and exotic retail shops, more corner stores, etc. This local, community based commerce is what makes for a stronger overall economy. We need small-time entrepreneurs.

As I was reading Yunus’ chapter on the United States while on the subway, I excitedly gripped the book and finally realized the biggest major obstacle both in my mind and in my nation in regards to poverty: the concept and institution of welfare.

“. . . I witnessed directly how welfare laws in the United States create disincentives for welfare recipients to work. Those who receive welfare become virtual prisoners not only of poverty but of those who would help them; if they earn a dollar, it must be immediately reported to the welfare authority and deducted from their next welfare check. Welfare recipients are also not allowed to borrow money from any institutional source.

. . . In the developed world, my greatest nemesis is the tenacity of the social welfare system. . . Recipients of a monthly handout feel as afraid to start a business as the purdah-covered women in Bengali villages.

. . . I believe . . . that providing unemployment benefits is not the best way to address poverty. The able-bodied poor don’t want or need charity. The dole only increases their misery, robs them of incentive and, more important, of self-respect.

Poverty is not created by the poor. It is created by the structures of society and the policies pursued by society.”

One of the problems with welfare is that it is staunchly defended by anyone who thinks that they are liberal and/or compassionate. It is thus defended because it is seen as a necessary means of address to the problems of poverty. But welfare is only a symptomatic address; it does not change the structures that create the conditions for poverty.

We obviously cannot just lop off welfare and expect the problem to be solved. Welfare must be reduced in tandem with the extension of financial services to the poor in the form of micro-loans. Welfare must also be altered to allow for the poor to have incentive to take out loans and start their own businesses.

Welfare as a concept and institution should not be done away with. Welfare is necessary for those people who are not able-bodied enough to help themselves. However, it needs some drastic changes in its structuring. Otherwise, all other actions we take to eradicate poverty in the United States will end up falling far short in the face of the lack of will, self-esteem, and motivation on the part of the poor themselves. Only they can raise themselves out of poverty.

2 thoughts on “Thoughts on Money & Poverty: The Root”

hi,
that was a great insight…
thanks for sharing…
poverty n money two very sensitive issues which does require lots of attention …
Im serving a cause on Endpoverty by 2015 in India.
Im voluntarily working with the United Nations on its Millennium Development Goals.

Thanks Pooja. The UN’s goals are a noble and necessary cause, and I applaud your efforts and involvement. Instead of a war on terrorism, the MDG and the war on poverty, ecological devastation, and disease is where the US, as well as all the rest of the “developed” world, needs to focus its energy and money upon.